Here’s a sad truth – Co-Working probably won’t make it.
We love co-working and we built three spaces in Melbourne – all profitable. But sadly we’re unusual is that we’re profitable at a low occupancy rate and that’s after we fund all the programs we need to run to make the space ‘sticky’.
For any product or movement you need to create a tipping point as quickly as possible otherwise you never build momentum and the incumbents will rally and find ways to compete.
We’re at a point where it’s unclear if we’ll make it.
In 2016 there was there were over 1.1 Trillion sqr meters of office space in the US, but only 0.5% of the space was classified as Co-Working. While the amount of space dedicated to Co-working is growing at a rapid rate, the low starting point means it will be a while before we see 10% penetration.
Worse, we know that the majority of spaces are struggling to make money with one estimate from the Second Global Co-Working Survey showing that 60% of space is yet to show a return.
A quick analysis by Pieter Levels (who acknowledges he’s a co-working nomad) shows why – most spaces are neither high volume or high margin.
There’s a simple reason why when you look at commercial landlords. Most landlords have made the significant capital investment and are looking for a good return per sqr meter for a long-term commitment. They typically want to sell to businesses who have healthy cash flow.
Co-working spaces on the other hand mostly target startups and freelancers who are resource constrained and have little appetite for long lease commitments.
This means you end up with the Co-Working space taking on the risk they can’t afford. In simple terms, they need to work there butts-off to maintain reasonable occupancy.
Worse, this effort has to be funded from the margin between what the landlord charges per meter and the co-worker sells it at.
Something has to give, and there’s a very good chance a bunch of spaces will disappear in the next 12 months from the market – shake out.